Despite the macroeconomic uncertainties, the tech sector continues to push the limits and innovate in various fields. Due to continuous technological advancements and the adoption of cutting-edge technologies, the tech sector remains well-positioned for long-term growth.

Amid this backdrop, it would be wise to buy fundamentally strong tech stocks Wipro Limited (WIT), Canon Inc. (CAJPY), Gilat Satellite Networks Ltd. (GILT), and Outbrain Inc. (OB), given their solid growth potential.

But before diving deeper into the featured stocks' fundamentals, let’s look at why the tech industry is well-positioned for growth.

Tech remains one of the most sought-after sectors, given the enormous potential to develop technological advancements and breakthroughs to improve operational efficiency. Despite the macroeconomic headwinds, the tech-heavy Nasdaq Composite has had a stupendous run this year, rising 35.9% year-to-date.

The Nasdaq’s strong performance this year can be attributed to the hype around generative AI. The development of such cutting-edge technologies makes the tech sector attractive. Also, what’s working for the tech industry is that spending on tech has become almost non-discretionary for enterprises.

Technology provides organizations with the required edge to get ahead of the competition. Gartner expects worldwide IT spending to grow 3.5% year-over-year to $4.69 trillion in 2023. It is expected to grow 8% year-over-year to $5.07 trillion in 2024.

The rise in IT spending could be attributed to the rapid adoption of digital transformation initiatives across various industries. The global digital transformation market is expected to grow at a CAGR of 26.7% to reach $4.62 trillion by 2030. Enterprises are switching from traditional software applications to cloud-based software services as part of the digital transformation initiative.

Worldwide spending on public cloud services is forecast to reach $1.35 trillion in 2027. According to Gartner, spending on IT services is projected to rise 7.3% year-over-year to $1.40 trillion this year and grow 10.4% year-over-year to $1.55 trillion in 2024. Furthermore, spending on communication services is expected to rise 1.8% year-over-year to $4.69 trillion.

The tech industry’s growth is expected to be further enhanced by the adoption and integration of emerging technologies like generative AI, blockchain, machine learning, AR & VR, edge computing, etc. Investors’ interest in tech stocks can be gauged from the Technology Select Sector SPDR ETF’s (XLK) 48.3% returns year-to-date.

Let’s take a closer look at the fundamentals of the aforementioned stocks.

Wipro Limited (WIT)

Based in Bengaluru, India, WIT is a global information technology, consulting, and business process services company. It operates through three segments: IT Services, IT Products, and India State Run Enterprise Services (ISRE).

On November 21, 2023, WIT announced a collaboration with NVIDIA to advance the adoption of generative artificial intelligence (gen AI) in healthcare, utilizing NVIDIA AI Enterprise software.

The partnership aims to enhance healthcare solutions with WIT leveraging NVIDIA’s AI Enterprise software for the production of AI across its current portfolio of healthcare solutions in Affordable Care Act (ACA), Medicare, and Medicaid to improve member experience, increase enrollment, and help support claims adjudication.

In terms of forward non-GAAP P/E, WIT’s 19.08x is 13.4% lower than the 22.03x industry average. Its 11.95x forward EV/EBITDA is 17.8% lower than the 14.53x industry average. Likewise, its 14.66x forward EV/EBIT is 23.5% lower than the 19.16x industry average.

For the fiscal third quarter that ended September 30, 2023, WIT’s revenues amounted to ₹225.16 billion ($2.70 billion). Its gross profit for the period increased 7.2% year-over-year to ₹65.97 billion ($791.34 million). The company’s profit for the period rose 0.7% over the prior-year quarter to ₹26.67 billion ($319.92 million). Its EPS attributable to equity holders of the company increased 3.9% over the prior-year quarter to ₹5.04.

Street expects WIT’s EPS for fiscal 2024 to increase 0.5% year-over-year to $0.25. Its revenue for fiscal 2025 is expected to increase 5.8% year-over-year to $11.46 billion. The stock has gained 6.8% over the past month to close the last trading session at $4.85.

WIT’s stable prospects are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

WIT has an A grade for Stability and a B for Quality. It is ranked #7 out of 9 stocks in the A-rated Outsourcing- Tech Services industry. Beyond what is stated above, we’ve also rated WIT for Growth, Value, Momentum, and Sentiment. Get all WIT ratings here.

Canon Inc. (CAJPY)

Headquartered in Tokyo, Japan, CAJPY produces and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. It operates through four segments: Printing Business Unit, Imaging Business Unit, Medical Business Unit, Industrial Business Unit, and Others segments.

On October 13,2023, Canon unveiled the FPA-1200NZ2C, a nanoimprint semiconductor manufacturing tool that employs NIL technology to transfer circuit patterns onto wafers by pressing a mask, allowing for precise reproduction of fine circuit patterns with a minimum linewidth of 14 nm.

By adding the FPA-1200NZ2C with nanoimprint lithography (NIL) technology to its existing photolithography systems, CAJPY expanded its lineup of semiconductor manufacturing equipment. This will help the company meet the wide range of demands from users.

On March 23, 2023, CAJPY announced the acquisition of assets - technology from Kyoto Seisakusho Co., Ltd., for mass production of cells for use in treatment and other clinical applications. This acquisition will enhance CAJPY’s presence in the field of Bio-science and accelerate advancements in regenerative medicine.

In terms of forward EV/Sales, CAJPY’s 1.00x is 62.2% lower than the 2.66x industry average. Its 6.80x forward EV/EBITDA is 53.2% lower than the 14.53x industry average. Likewise, its 10.83x forward EV/EBIT is 43.5% lower than the 19.16x industry average.

CAJPY’s net sales for the third quarter ended September 30, 2023, increased 2.9% year-over-year to ¥1.03 trillion ($6.98 billion). Its operating profit increased 1.5% over the prior year quarter to ¥82.62 billion ($55.97 billion). The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($42.09 billion).

In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.

Street expects CAJPY’s revenue for fiscal 2023 to increase 112.5% year-over-year to $28.34 billion. Over the past nine months, the stock has gained 20% to close the last trading session at $25.77.

CAJPY’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Value, Momentum, Stability, and Quality. Within the B-rated Technology-Hardware industry, it is ranked #9 out of 37 stocks. Beyond what we stated above, we have also given CAJPY grades for Growth and Sentiment. Get all the CAJPY ratings here.

Gilat Satellite Networks Ltd. (GILT)

Headquartered in Petah Tikva, Israel, GILT provides satellite-based broadband communication solutions internationally. It operates in three segments: Satellite Networks, Integrated Solutions, and Network Infrastructure and Services.

On November 16, 2023, GILT announced that it had completed the acquisition of DataPath, Inc., a market leader in trusted communications for the U.S. DoD Military and Government sectors. GILT’s CEO, Adi Sfadia, said, “This acquisition is a strong step ahead in Gilat’s strategy to increase its presence in the growing defense market.”

In terms of forward EV / Sales, GILT’s 1.00x is 62.4% lower than the 2.66x industry average. Its 7.37x forward EV/EBITDA is 49.3% lower than the 14.53x industry average. Likewise, its 8.76x forward EV/EBIT is 54.3% lower than the 19.16x industry average.

For the fiscal third quarter ended September 30, 2023, GILT’s revenues increased 5.9% year-over-year to $63.93 million. Its non-GAAP gross profit increased 12.1% over the prior-year quarter to $25.91 million. The company’s non-GAAP operating income increased 39.6% over the year-ago quarter to $6.10 million.

In addition, its non-GAAP net income rose 51.2% over the prior-year quarter to $4.58 million. Its non-GAAP EPS came in at $0.08, representing an increase of 33.3% year-over-year.

For the quarter ending December 31, 2023, GILT’s revenue is expected to increase 4.6% year-over-year to $75.99 million. The company has an impressive surprise history, beating EPS estimates in three out of trailing four quarters.

Over the past six months, the stock has gained 18.3% to close the last trading session at $6.39.

GILT’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Sentiment and a B for Growth, Value, and Quality. Within the Technology – Communication/Networking industry, it is ranked first out of 46 stocks.

Beyond what we stated above, we also have given GILT grades for Momentum and Stability. Get all GILT ratings here.

Outbrain Inc. (OB)

OB operates a recommendation platform worldwide. It offers Outbrain Engage, a product suite for media partners that provides data-driven recommendations, as well as a solution to maximize user engagement. It also provides solutions for advertisers with access to ad inventory that support various formats, including text and image native ads, outstream video, pre-roll video ads, interactive carousel, and others.

OOn June 14, 2023, OB launched Onyx, a new branding platform exclusively operating within in-article environments across its premium publisher partners. Developed to enhance campaign effectiveness and return on ad spend (ROAS) for enterprise brands, Onyx leverages AI-driven technology to predict user engagement, offering custom large ad formats for high-impact display experiences.

In terms of forward EV / Sales, OB’s 0.12x is 93.4% lower than the 1.76x industry average. Its 3.65x forward EV/EBITDA is 56.4% lower than the 8.37x industry average. Likewise, its 0.20x forward Price/Sales is 81.5% lower than the 1.10x industry average.

OB’s revenue for the third quarter that ended September 30, 2023, rose marginally year-over-year to $230 million. Its gross profit increased 10.7% year-over-year to $46.39 million. Its adjusted EBITDA grew 508.1% from the year-ago quarter to $10.25 million.

Furthermore, the company’s adjusted net income and adjusted net income per share stood at $272 thousand and $0.01, compared to an adjusted net loss and adjusted net loss per share of $5.50 million and $0.10 in the prior-year quarter, respectively.

Analysts expect OB’s revenue for the quarter ending March 31, 2024, to increase 1.5% year-over-year to $235.25 million. It has topped consensus EPS estimates in three of the trailing four quarters, which is impressive. The stock has gained 5.3% year-to-date to close the last trading session at $3.81.

OB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.

OB has an A grade for Value and a B for Growth. Within the Technology – Services industry, it is ranked #15 out of 75 stocks. Click here to access the additional OB ratings (Momentum, Stability, Sentiment, and Quality).

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

WIT shares were trading at $4.84 per share on Friday morning, down $0.01 (-0.21%). Year-to-date, WIT has gained 4.09%, versus a 21.07% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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